$1.5m Zayat settlement will make small dent in overall debt of $19m

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The trustee in Ahmed Zayat’s personal bankruptcy case negotiated a $1.5million settlement to be paid by the debtor’s brother, Sherif Zayat, which a court document said he would ‘resolve all claims and Causes of Action” related to the multiple mortgages on Zayat’s home.

The motion to approve this settlement, if ordered by a federal bankruptcy court judge in New Jersey on July 6, does not mean the end of the complicated Chapter 7 motion, which has now been dragging on for 21 months, per the allegedly insolvent former Thoroughbred owner. and breeder.

But that means some of that $1.5 million could trickle down to creditors once the case is fully settled.

As a lawyer for trustee Donald Biase said in his June 6 court filing, the settlement “will provide a benefit to the debtor’s estate, which was otherwise uncertain.”

The settlement papers were filed exactly seven years and a day after Zayat superstar American Pharoah won the 2015 Triple Crown.

The issue of the $19 million in debt for Thoroughbred trainers, horse farms, blood businesses, veterinarians and equine transportation companies who are among the 132 entities listed as unsecured creditors still has no not changed much.

This is because the money owed to them is in the form of “unsecured non-senior debt”, which puts these people and companies very far down the pecking order for the repayment of Zayat’s debts.

Under Chapter 7 bankruptcy laws, non-priority unsecured debt sits at the bottom of the hierarchy to be paid – if paid at all – after a trustee liquidates the assets and discharges the debts. They are ranked behind “secured” loans in which property is given as security, such as liens and mortgages.

The June 6 filing said there were five first, second and third mortgages secured by Zayat’s 7,714-square-foot home and two adjacent lots in Teaneck, New Jersey.

However, the same document stated that three of these mortgages – which were granted by friends and family members and not by lending institutions or banks – would be considered by the trustee as “avoidable transfers”, which means that they can be canceled and the product returned. to the estate for distribution to creditors. Avoidable transfers can also lead to charges of fraud.

One such property-backed loan that Biase wrote of as “avoidable” was $500,000 from Egypt-based Sherif Zayat.

That loan was registered as a mortgage with a New Jersey county clerk on Sept. 2, 2020 — six days before Ahmed Zayat filed for Chapter 7 bankruptcy while claiming he didn’t. only had $300 in cash and $14.22 in two checking accounts.

On September 14, 2020, an involuntary bankruptcy petition was filed against Zayat’s family racing business, Zayat Stables, LLC. This case is separate from this personal bankruptcy case, although many race-related creditors overlap in the two cases.

In a ragged wealth case brimming with allegations of fraud since its inception, Biase’s filing said he attempted to trace the tangled web of Zayat family finances via “the issuance of numerous subpoenas in under the 2004 Rule, reviewing thousands of pages of documents, including bank statements and tax returns, and making depositions under the 2004 Rule and extensive motions practice, including numerous motions to obtain access to the debtor’s real estate and its contents, by my appraisers. »

In addition to not having his Chapter 7 bankruptcy protection granted by the court if he does not tell the truth, Zayat faces a possible federal investigation and/or charges if the US Department of Justice believes that crimes have been committed.

Biase has repeatedly claimed that the Zayat and his family hampered his investigation through evasive tactics and non-compliance.

Zayat has always denied engaging in any illegal activity or hiding any money. He also insisted that neither he nor his family members were trying to interfere with the work of any of the administrators in charge of controlling his personal finances and business operations.

The June 6 filing revealed a new nugget about Ahmed Zayat that had not previously been disputed: “The debtor has a stake in a farm located in Egypt,” the Biase filing states.

If true, it is unclear whether this alleged ownership interest could also be seized as an asset to pay creditors. The record did not specify either way.

The settlement document, which was signed by all parties on May 26, stated that “the debtor, parties Zayat and Sherif, and any entity in which they have an interest waive all claims against the debtor’s estate. [and] the parties are released from all claims and causes of action and the trustee is deemed to have abandoned the interest of the debtor’s estate in the NJ property pursuant to section 554 of the bankruptcy code. »

Biase’s filing said this type of settlement was preferable to continuing to fight the case in court and/or forcing the sale of the property.

“While the trustee believes it would likely prevail over the claims against the debtor, parties Zayat and Sherif, the trustee wishes to settle the claims, in order to save the debtor’s estate time and money that would otherwise spent in litigation of the claims,” the filing reads.

“With respect to the NJ property, even if the trustee could get a $4.8 million offer and avoid [the three mortgages with individuals] after deducting the first and second mortgages totaling $3.4 million and the broker’s commission of $240,000, there would be a non-exempt net worth of approximately $580,000…,” the filing states.

“This amount also does not include the debtor’s potential homestead exemption, cost and time to seek approval under [the] Bankruptcy code to sell NJ property, and the time and cost to avoid the [individual mortgages]“, indicates the file.

“The $1.5 million settlement amount greatly exceeds the potential non-exempt equity in the NJ property,” the filing summarizes.

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